Montana oil lease sale could mark Bakken expansion

Montana oil lease sale could mark Bakken expansion

October 25th, 2012by MATTHEW BROWN, Associated Press
in News

BILLINGS, Mont. (AP) - A Texas company has bought oil and gas leases on almost 75,000 acres in northeast Montana's McCone County in a move that could portend a significant westward expansion of the Bakken oil patch, government officials and a company representative said Wednesday.

San Antonio-based Donco Inc. paid more than $13.5 million for the leases in a competitive auction held Tuesday by the federal Bureau of Land Management. It marks one of the largest federal lease acquisitions by a single company in Montana in recent years, BLM spokesman Kristen Lenhardt said.

Donco is the parent company of Shale Exploration LLC.

Shale Exploration President Sam Tallis said Wednesday that the company aims to amass leases on roughly 200,000 acres in McCone and neighboring Garfield counties. He said drilling could begin next year.

The Bakken region of western North Dakota and eastern Montana has emerged in recent years as one of the most productive oil patches in the U.S. The area being targeted by Shale Exploration has seen only limited drilling to date, said Tom Richmond with the Montana Board of Oil and Gas.

"It's new interest in the area," Richmond said.

Tallis said his company is confident the McCone-Garfield area has other oil-bearing geological formations in addition to the Bakken, located at different depths beneath the surface.

"This is a step away from where most people believe the conventional Bakken is," Tallis said. "A lot of people call it the end of the road because it's the last possible place for the Bakken, to go that far. But we tend to like it because there are other formations."

The leases bought by Donco accounted for 153 out of 244 oil and gas parcels sold at Tuesday's BLM auction, Lenhardt said. Total proceeds from the sale topped $16 million. That included 7 parcels sold in South Dakota, with the remainder in Montana.

Shale Exploration previously has been active in other parts of Montana, including Daniels County, where it partnered with the much-larger Apache Corp. to drill on leases it amassed there.

Richmond said it's too early to say if the intensive drilling activity seen in Montana counties closer to the North Dakota border is repeated in McCone County.

For now, he said, it remains a "lease play," meaning companies such as Shale Exploration are scrambling to snap up leases on public and private land in anticipation of future development.

"Lots of time leasing plays get a life of their own," he said. "The leasing starts first, and at some point in time the assumption is that somebody's going to drill a well someplace, and prove or disprove the play."

Tallis, who works out of Billings, referred to Montana as "the best kept secret in oil and gas" and said he and majority owner Sid Greehey are in it for the long haul.

In April, Shale Exploration donated $130,000 to the Scobey Public Schools in Daniels County to purchase iPads - tablet computers made by Apple Inc. - for all the district's students. A month later, the company donated $20,000 to the Montana Rescue Mission Women's and Family Shelter in Billings.

Tallis said he hopes to establish a similar close relationship with residents of Garfield and McCone counties.

"Whether it's iPads or something else, we want to partner with the community," he said.